Born in the U.S.A.: Small stocks’ big gains reflect homegrown recovery

Bruce Springsteen, call your agent. This latest stretch of the U.S. stock market rally was born in the U.S.A.

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Bruce Springsteen

Shares of smaller, domestically focused companies have been outperforming their larger, globetrotting counterparts, reflecting the slow but steady U.S. economic recovery and a newly minted energy independence that is making the U.S. a low-cost manufacturer.

The Standard & Poor’s 500-stock index
/quotes/zigman/3870025/realtimeSPX is up a stunning 28% so far this year through Tuesday, including dividends, or about three years’ worth of average gains in almost 11 months.

But the S&P SmallCap 600-stock index has surged 35% in that time, leading some investment pros to suggest that small-caps’ strength is a plus for U.S. economic growth in 2014.

“The industrial energy revolution in this country is making cost structures for businesses much lower than everyone else’s,” he says. The U.S., he adds, is “the low cost producer of energy now. That gives us tremendous advantage.”

Moreover, corporate balance sheets generally are stronger, having weathered the financial crisis that took out many competitors, Hodges notes. One of his picks that has become a dominant player through such attrition is Encore Wire
/quotes/zigman/71515/delayed/quotes/nls/wireWIRE, which manufactures and supplies copper wire for homes and buildings.

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